Suncor Energy Inc. reported a first quarter 2009 net loss of $189 million ($0.20 per common share), compared to net earnings of $708 million ($0.77 per common share) in the first quarter of 2008. Excluding unrealized foreign exchange impacts on the company's U.S. dollar denominated long-term debt, mark-to-market accounting losses on commodity derivatives, and costs related to start-up or deferral of growth projects, first quarter 2009 earnings were $227 million ($0.24 per common share), compared to $805 million ($0.87 per common share) in the first quarter of 2008. Cash flow from operations was $479 million in the first quarter of 2009, compared to $1.161 billion in the first quarter of 2008.
The decrease in earnings was primarily due to lower price realizations, as benchmark commodity prices were significantly weaker in the first quarter of 2009 compared to the same period in 2008. This was partially offset by increased margins in our downstream business segment and reduced oil sands royalty expenses.
"If you back out the effects of accounting impacts from mark-to-market and foreign exchange losses, and the non-structural charges for deferred growth projects, you'll see that from an operational perspective we had a solid quarter, while financial performance was reflective of current economic conditions," said Rick George, president and chief executive officer. "Downstream margins were strong and we reported record quarterly production in the upstream."
Suncor's total upstream production averaged 314,500 barrels of oil equivalent (boe) per day during the first quarter of 2009, compared to 286,200 boe per day in the first quarter of 2008. Higher production primarily reflects improved operational efficiency at the company's oil sands operations, as well as additional volumes processed on a fee-for-service contract for Petro-Canada, which came into effect on January 1, 2009.
Oil sands production contributed an average 278,000 barrels per day (bpd) in the first quarter of 2009, compared to first quarter 2008 production of 248,000 bpd. Natural gas production averaged 219 million cubic feet equivalent (mmcfe) per day in the first quarter of 2009, compared to 229 mmcfe per day in the first quarter of 2008.
"Over the past year, we've made concerted efforts and significant investments targeting improved reliability and increased efficiency at our oil sands operations," said George. "This quarter's production numbers are a real testament to this work and should position us well for good results in 2009, particularly if crude prices hold up."
Oil sands cash operating costs averaged $33.70 per barrel in the first quarter of 2009, compared to $31.55 per barrel during the first quarter of 2008. The increase in cash operating costs per barrel was primarily due to an increase in operational expenses, partially offset by lower energy input costs and reduced third-party bitumen purchases.
On March 23, 2009, Suncor and Petro-Canada (TSX:PCA - News; NYSE:PCZ - News) announced that they have agreed to merge the two companies. Upon completion of the transaction, which will require shareholder approval, regulatory approval, as well as a review by the Canadian Competition Bureau, the combined entity is expected to operate corporately and trade under the Suncor name while maintaining the strong brand presence and customer loyalty of Petro-Canada in refined products. The transaction is anticipated to close in the third quarter of 2009.
"This merger creates a made-in-Canada energy leader with the assets, cost structure and financial strength to compete globally," said George, who will continue in the role of president and chief executive officer with the merged company. "The combined portfolio boasts the largest oil sands resource position, a strong Canadian downstream brand, solid conventional exploration and production assets, and low-cost production from Canada's east coast and internationally."
While merger review and approval processes continue, work is ongoing on two significant capital projects at Suncor's oil sands operations. Construction of the Firebag sulphur plant, previously targeted for completion in the second quarter of 2009, is now scheduled for completion early in the third quarter of 2009, with the delay due to the delivery schedule of modules from key vendors. The project cost is expected to exceed the upper end of the original cost range (approximately $375 million) with a final estimated cost in excess of $400 million as a result of the increased cost of major equipment. When complete, the plant is expected to support sulphur emissions reductions for existing and planned in-situ developments.
In addition, the company is nearing completion of its Steepbank extraction plant. This plant, which is targeted for completion in the third quarter of 2009, is expected to provide improved reliability and productivity for the company's oil sands mining and extraction assets.
Suncor does not anticipate an update to growth project plans until after the close of the proposed merger with Petro-Canada. At that time, all capital projects from both companies are expected to be reviewed with a view to directing capital investment toward projects with the strongest near-term cash flow potential, highest anticipated return on capital and lowest risk.
Suncor's outlook provides management's targets for 2009 in certain key areas of the company's business. Outlook forecasts are subject to change and do not reflect the proposed merger with Petro-Canada.
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